CORFAC News

10 Jan2013

Voit Reports Positive Absorption for Office and Low Industrial Vacancy in Orange County Q4 Market Reports

Orange County, Calif., (January 10, 2013) – In the final quarter of 2012, the Orange County office market posted nearly 500,000 square feet of positive net absorption, giving the market approximately 1.6 million square feet of positive absorption for the year and over 4.6 million square feet of positive absorption over 10 consecutive quarters, according to the Fourth Quarter Market Report from Voit Real Estate Services.

“These are encouraging numbers across the board, and we anticipate that this improvement will continue steadily throughout 2013,” says Jerry Holdner, Vice President of Market Research at Voit. “The big news is that lease rates have likely hit bottom in the office market, where Class A product is leading the recovery, and low vacancy and availability are driving up value and rental rates in the industrial market.”

Class A Office Space Fuels Activity in Orange County

Voit’s Q4 2012 market report indicates ongoing signs of recovery in the Orange County office market, which ended the year at 13.76 percent vacancy, a substantial decrease from the previous year’s rate of 15.13 percent and significantly down from both the Great-Recession peak of nearly 18 percent in Q2 2010 and the market high of 23 percent recorded in 1990. Availability followed the same trend, ending the fourth quarter at 18.96 percent - a decrease of nearly two percent when compared to Q4 2011.

High-end space is fueling the activity in Orange County, according to Voit’s report, which indicates that Class A space had the greatest amount of positive absorption in 2012, coming in at over 850,000 square feet. “Companies continue to expand in Orange County, which will bring ongoing stability to the market,” explains Holdner, who notes that Allergan, CoreLogic, Western Digital, LA Fitness, Greenlight Financial and Gateway One all expanded in 2012.“Research-oriented businesses, including IT, defense, medical and alternative energy companies, are most likely to lead the charge of positive absorption over the next few years,” says Holdner.

In addition to improving occupancy, the Orange County office market also demonstrated encouraging average lease rate numbers.“Office rents have finally flattened, and we are beginning to see concessions back off,” says Holdner. “Both are strong indications that we have reached a bottom in the downward trend of asking office lease rates, and we anticipate that rates will begin to increase in 2013.”

The average asking lease rate per month per square foot in the Orange County office market was $1.88 at the end of 2012’s fourth quarter, unchanged from Q3 2012.

In addition, some construction projects began to resurface in 2012, and Voit’s report indicates that the total office space under construction came in at almost 950,000 square feet for the fourth quarter of the year. Voit’s report identifies two build-to-suits as the most notable construction projects in the current Orange County office market, including a 469,000 square-foot project for Hyundai in Fountain Valley, as well as a 479,800 square-foot project for PIMCO at Fashion Island in Newport Beach.

“Overall, the future appears to be bright for the office market in Orange County. As we move into 21013, we expect the amount of vacant and available space to continue to decrease, which will prompt continued positive absorption and an increase in lease rates,” says Holdner.

Increasing Occupancy and Decreasing Supply Drives Industrial Values Up

The Orange County industrial market continued to display promising numbers in the fourth quarter of 2012, posting 948,377 square feet of positive net absorption during the quarter.

“Overall, the OC industrial market has posted nearly 4.7 million square feet of positive absorption since Q2 of 2010,” says Holdner. “We anticipate that net absorption will continue its positive trend in 2013.”

Both vacancy and availability continued their downward trend in Q4, as the 4.68 percent vacancy rate seen at the close of the quarter was a decrease of 7.33 percent when compared to Q4 2011. In addition, availability of direct/sublease space being marketed ended the fourth quarter at 7.33 percent, a decrease of 11.69 percent from 2011’s Q4 rate of 8.30 percent.

“As net occupancy continues to improve and availability declines, lease rates will continue to rise, which is a strong indication of future stability,” says Holdner.

The average asking triple-net industrial lease rate checked in at $.57 per square foot per month, one cent higher than the previous quarter and two cents higher than the $.55 rate seen in Q4 2011.“We are forecasting that lease rates will continue to rise, ending 2013 at around $.60 per square foot per month,” says Holdner.

As lease rates rise, sale prices are also ticking up, says Holdner, who attributes this trend to the diminishing supply of industrial product for sale in Orange County, particularly in the 30,000-to-100,000 square foot range.“Currently, only around three percent of the inventory in the Orange County industrial market is available for sale. This lack of supply will continue to place upward pressure on pricing going forward,” he explains.

The average asking sales price in the fourth quarter of 2012 was $148.99 per square foot, an 11.71 percent increase from the previous year’s price of $133.37.“Overall, we continue to be cautiously optimistic about the Orange County market,” says Holdner. “We continue to see improvement in both the office and industrial markets, and we anticipate positive gains moving forward, provided job creation continues and consumer confidence stabilizes.”

About Voit Real Estate Services

Voit Real Estate Services is now a 10-office commercial real estate firm that, through its brokerage and asset services professionals working together, provides strategic property solutions tailored to clients' needs. Combining 40 years of expertise in brokerage, investment advisory, financial analysis, market research, asset management, tenant advisory and property management services, Voit provides clients with forward looking strategies that create value for their assets and portfolios.

Voit is a privately held, debt-free firm that has successfully navigated numerous market cycles since 1971 and currently employs more than 250 people. Voit has owned, developed and managed over 50 million square feet of commercial real estate, participated in $1.4 billion of construction projects and completed over $36 billion in brokerage transaction volume. Further information is available at www.voitco.com.

About CORFAC International
CORFAC International (Corporate Facility Advisors) is distinguished by the way it manages multi-market commercial real estate assignments on behalf of corporate entities and privately owned companies. Founded in 1989, U.S.-based CORFAC is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and corporate services in North America, with coverage in South America provided by Panama-based Latin American Corporate Property Services. A Principal Member of FIABCI – the International Real Estate Federation with global affiliates in Europe and Asia, CORFAC International offers commercial real estate services with market reach in 65 countries worldwide. In recent years, CORFAC firms have averaged 10,000 completed transactions annually encompassing nearly 100 million square feet and valued at more than $6 billion. For more information on CORFAC, contact 703.532.6160 or visit www.corfac.com.

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